Beyond GDP: Alternative measures of economic and social progress

Gross National Product (GDP) started to be calculated by statisticians in the US and Europe only after the Second World War, and has been criticised since the moment of its inception as a practice. In an often-cited speech at the University of Kansas in March,1968, Robert F. Kennedy claimed that GDP “measures everything, except that which makes life worthwhile”.

In 1990 the UNDP began publishing its Human Development Report, where the Human Development Index (HDI) was calculated. It was a simple non-weighted average of three normalised indicators: life expectancy, educational level and PPP GDP per capita. In recent years HDI is adjusted for inequality. In the list of countries with the highest HDI (table) we find the usual suspects (Scandinavian countries, Germany, the Netherlands, Austria, Switzerland, Australia, France, Luxembourg, Belgium, Canada, UK, US), but also Ireland, Slovenia, the Czech Republic, and Slovakia, which are nowhere near the top in the per capita GDP country list.

As the jubilee (50 years’ anniversary) report of the Club of Rome stated, “measuring our success on GDP growth has proven inadequate to the task and it also masks a growth in inequality between rich and poor. New indicators such as a Genuine Progress Indicator could more accurately measure economic welfare.[1]Today there is a large literature on shortcomings of GDP and a lot of proposals for alternative indicators of economic and social progress,[2] but the issue is far from settled.

Discussion points:

There may be one justification for GDP computation: higher GDP per capita may not bring more happiness or justice, but could lead to greater economic competitiveness. Countries with higher GDP per capita are more competitive in the short run and can drive other countries out of business (make them economically bankrupt). The result is that countries with greater justice and happiness (and higher life expectancy, literacy, better ecology and environment, lower crime, and better use of resources, etc.) will disappear in competition with countries that only care about GDP.

What are the alternative general indicators of performance and progress? How do we best take into account the sustainable development concept? How (with what weights) do we aggregate different goals of development to construct a general indicator?

Happiness indices: If we find the empirical relationship between happiness and per capita income, life expectancy, educational attainment, crime, pollution, inequality and other indicators, should we replace GDP with a happiness indicator constructed out of these and other variables?

[1] Come On!: Capitalism, Short-termism, Population and the Destruction of the Planet. 2017. Https://www.clubofrome.org/2017/10/25/new-report-to-the-club-of-rome-come-on/.